With certain phase-in exceptions, federal and state franchise disclosure laws require that the FDD include an audited financial statement.  Some regulators have started to verify an auditor’s professional qualifications as part of the FDD review process.  Essentially, the regulators are checking to see whether the “certified public accountant” is actually certified, meaning currently licensed. 

States laws require that persons holding themselves out as CPAs actually have licenses.  These laws typically have professional responsibility and continuing education requirements.  A properly licensed CPA can lose that status as a result of a disciplinary action, or simply failing to stay current a state’s post-certification requirements.  An unlicensed accountant is not certified.

To avoid this pitfall, it is important that the franchisor verify the qualifications of the person or firm it is hiring to perform the audit.  You can do that by:

  • Checking with your state’s board of accountancy (or its equivalent).  Most states make it easy to search for an individual or firm online.
  • You can also check the website CPAverify.org, if the state in which the auditor is located participates in the program; and most states participate.

If the person or firm that performs the audit of a franchisor’s financial statements is not properly licensed, the franchisor may pay the price.  At best, the regulator identifying this deficiency will refuse to register the FDD, because it will have a deficiency, being that its financial statements were not properly audited by an independent certified public accountant. At worst, if the deficiency is identified after the FDD has already been registered, the franchisor may be charged with a franchise law violation and could even be required to offer franchisees rescission.